Although the heat is on weather-wise in the Triangle, our recently overheated Stock market suddenly took an icy plunge lower this past week. Just as quickly as the Dow had cracked the record level of 14,000, Stocks reversed course and lost 586 points for the week overall. The big cool down was triggered by a few different factors, including several weak Stock earnings reports and continuing concerns about the backlash from the subprime mortgage situation and tightening mortgage credit. And when the mood in the Stock market went sour, it happened fast - Traders and investors unloaded Stocks hand over fist.
But when they sell off Stocks, that money has to get parked somewhere, right? The glad beneficiary of the selling was the Bond market. As money flowed out of Stocks and into Bonds, the Bond market overall enjoyed a move higher with the influx of money, helping home loan rates stabilize and even improve very slightly in Raleigh and Cary, NC.
It is my opinion the heat is on - and will stay on for the week ahead! The volatile Stock earnings season continues, and as if that weren't enough, the economic calendar also holds several big potential market movers.
Lots of economic reports are due for delivery this week, including Tuesday's look at the Fed's favorite measure of inflation, the Personal Consumption Expenditure index, and wrapping up with a bang on Friday with the monthly Jobs Report. If the week's inflation numbers meet or are lower than expectations while the data for the economy is worse than expected, Bond prices should continue their recent upward trend and home loan rates will improve. However, if the reports reek of inflation or an overheated economy, Bond prices could quickly lose their recent gains, and home loan rates will worsen.